FPSO'S

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With high bids way down, Central Gulf lease sale seen as eading industry indicator...

High bids way down because of economy.

Article By Kevin Parker- Senior Editor
Published Mar 23, 2009 Print E-mail


On Wednesday, March 18, Secretary of the Interior Ken Salazar announced high bids of more than US $700 million for the federal sale of offshore tracts in the Gulf of Mexico's Outer Continental Shelf. In contrast, last year’s sale in the Central Gulf attracted a record $3.7 billion in winning bids.

The auction results are being seen by commentators and analysts as indicative of the cumulative impact on petroleum exploration of depressed prices for oil and gas; the current credit crisis; and the Obama Administration’s projected energy policies.

Officials of the Minerals Management Service were not willing to concede the point, however, noting that much of this year's sale, in contrast to last year’s, was for somewhat less alluring shallow-water tracts.

Officials also noted there were high bids for tracts near deepwater discoveries and production, and there were 95 bids for tracts in shallow water, meaning that companies were intent on deep drilling in search of natural gas.

Clearly, however, the high bids came from the oil majors, with far fewer mid-sized companies submitting winning bids than the last several years. Royal Dutch Shell and BP PLC dominated the list of winners, followed by Marathon Oil Corp. and Nobel Energy Inc.

Initially, 56 companies submitted 476 bids on 348 tracts being offered for Central Gulf of Mexico Oil and Gas Lease Sale 208, including offshore Louisiana, Mississippi, and Alabama. This total number of bids was down more than half from last year’s sale in the Central Gulf, which attracted 78 companies putting 1,057 bids on 617 tracts.

Wednesday’s sale encompassed about 6,459 unleased blocks covering more than 34.6 million acres, including approximately 4.2 million acres located in the southeastern part of the central Gulf of Mexico known as the 181 South Area that has not been offered for lease since 1988. The 181 South Area, however, ended up not attracting much bidding.

Greater numbers of bids for tracts on the shallow shelf of the Gulf or in its deepest waters reflect current trends in exploration and production, which benefit from recent technology advances in enhanced recovery and deepwater drilling.

In reaction to rising gas prices, candidate Barack Obama’s stance before the presidential election was that he would support some expansion of offshore drilling, while still emphasizing conservation and renewable energy, according to The New York Times. However, the president’s current budget proposals would increase taxes on oil companies and would raise the cost of fossil fuels to pay for alternative energy sources. A range of tax credits would also be removed.

At the time of last year’s Gulf of Mexico sale, oil prices were about $110 a barrel. The current price is just under $50 a barrel. Natural gas prices are about a third of their 2008 peak. The production environment is further influenced by the high price or unavailability of credit that all but the oil super-majors are facing.

Salazar recently noted that the Bureau of Land Management has held seven onshore oil and gas lease sales in the last seven weeks, generating $32 million in revenues, and that more than 40 major lease sales for petroleum development on public lands will take place this year.

After opening the initial high bid, Salazar commented, “Today’s lease sale will help us make a wise addition to our nation’s energy supply. The responsible energy development resulting from today’s sale will be a part of our nation’s comprehensive energy plan, which will include a renewed emphasis on conservation and an aggressive effort to develop our renewable energy resources, so we can move our nation toward energy.....